Module 2: Income Statement (Basic Questions)

Question 1

What does “Revenue” represent on the income statement?

Answer 1

Revenue measures net sales (sales after refunds & returns) and can only recognize those sales when a product/service is actually DELIVERED.

Question 2

What does “COGS” represent on the Income Statement?

Answer 2

“COGS” stands for Cost of Goods Sold. They represent the “per unit” expenses of selling products/services.

Question 3

What does “Gross Profit” stand for on the Income Statement?

Answer 3

Gross Profit tells you how much additional “potential profit” you could make with each sale, before any fixed expenses such as rent are accounted for. Higher gross profit is almost always better.

Question 4

Define “OpEx” on the Income Statement?

Answer 4

“OpEx” stands for Operating Expenses. It accounts for expenses that cannot be directly linked to individual goods sold.

Question 5

Define “Operating Income” on an Income Statement?

Answer 5

Operating Income measures how much was earned before non-core activities, interest earned/paid, and taxes.

Question 6

Define “Net Income” on the Income Statement?

Answer 6

Net income is essentially the “bottom line” of a company. It measures how much money a business generated after taxes and expenses.